BIOGRAPHY REVIEW

Published 4:00 am, Monday, July 13, 2009

The Match King

Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals

(PublicAffairs Books; 272 pages; $26.95)

It's altogether possible that 80 years from now the world will have forgotten Bernard Madoff, the financial archvillain of our day. Yes, he crushed the dreams of his investors by perpetrating what appears to be a stunningly conventional and long-running Ponzi scheme. Yet while a minor star in the U.S. financial constellation, Madoff apparently was nothing more than a grandiose and startlingly successful fraudster. His crimes will be repeated the next time a shrewd con man gains the trust of gullible investors. He brought down no institutions that mattered on any grand scale.

None of this is true of Ivar Kreuger, the Match King of Frank Partnoy's splendidly revealing portrait. Kreuger was among the most important global financiers of the pre-Depression 1920s, so famous that his comings and goings were noted in the daily papers. When he fell, he tugged down with him one of the most powerful investment houses in the United States, the also-forgotten firm of Lee Higginson. And the direct result of his shenanigans, Partnoy convincingly argues, was a thorough revision of U.S. securities law in 1933 and 1934, acts that admirably shielded investors in public markets right up to the beginning of the current financial crisis.

Nonetheless, and for reasons that Partnoy never fully explains, Kreuger's name was quickly forgotten, to be dredged up only when financial historians list the greatest scam artists of all time. An answer lies in a surprising description in Partnoy's subtitle: "financial genius." How could it be that the Swedish Krueger, who played a massive shell game with his investors, bankers and auditors on two continents, also was a genius? This in fact is what makes his story so compelling.

It seems quaint today, but the safety match was a revolutionary and innovative product in its time, and Kreuger built a business empire by negotiating the rights to match monopolies with multiple national governments. He controlled Swedish Match in his native country and International Match in the United States. The latter was his vehicle for raising cash from U.S. investors, which he then lent abroad.

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All these activities were more or less legitimate. Along the way Kreuger was a financial innovator as well. In his quest for secrecy, he invented a durable financial technique, the super-voting "B share," which allowed investors to invest in his companies without his giving up control or forcing him to divulge information. Companies including the New York Times, Ford and Google have similar arrangements today.

Kreuger also had a dark side. He created shell companies to obfuscate his accounts. He lavished money and other gifts on his auditors and bankers - then kept them in the dark on the particulars of his businesses. He forged securities certificates to make creditors believe he had more money than he did. He raised money from investors and borrowed it from banks so he could make payments due on other commitments.

Kreuger's juggling might have continued but for factors outside his control, in his case the stock market crash of 1929 and the subsequent Great Depression. Kreuger killed himself in 1932 - though there is some mystery surrounding his presumed suicide - and so he was never able to give a complete accounting of which part of his house of cards may have contained tangible building blocks.

Partnoy, a law professor who has worked as a corporate lawyer and investment banker, unearths previously unpublished documents that help him tell Kreuger's story in a way that's accessible to the general reader and revealing to the student of business history. His highly readable account takes one back to the age of steamship travel and cabled messages, when so much about the capital markets was completely different from today. That mysterious geniuses can separate great wealth from willing investors until the macroeconomic environment catches up with them, it seems, is a timeless constant.